The distributional impact of the 2012-13 higher education funding reforms in England

This paper investigates the financial implications of the higher education funding regime to be introduced in English universities in September 2012. The analysis is based on simulated lifetime earnings profiles among graduates, linked to imputed information on parental incomes and institution and course choices. We find that, on average, total gross tuition fees will increase by over £15,000 as a result of the reforms; nevertheless, students will be significantly better off while they study due to the increased generosity of student support. The average graduate will be roughly £8,850 worse off over their lifetime, while universities will, on average, be better off as they are more than able to make up for the loss of substantial amounts of direct public funding through higher fees. The taxpayer is set to lose 33p of every £1 loaned to students (up from 25p under the current system) because of the generosity of the loan repayment terms, although the new regime is still expected to save the taxpayer around £2,500 per graduate overall. The reforms involve a substantial shift in the incidence of the cost of higher education away from the public sector and towards the private sector. In terms of the likely implications for social mobility, our work confirms that the new funding regime is actually more progressive than its predecessor: the poorest 29 per cent of graduates will be better off under the new system, while other graduates will be worse off. Moreover, the richest 15 per cent of graduates will pay back more than they borrow, while others will be subsidised. If prospective students from poorer backgrounds are aware of these facts, then, in theory, the new funding system should not dissuade them from applying to university – and thus it would increase, rather than reduce, social mobility in the long run. However, this will require a lack of debt aversion amongst students from the poorest backgrounds, and the ability for the government and universities to provide students with clear information about the likely costs of going to university.

Five new studies, published today as part of a special issue of the IFS journal Fiscal Studies, investigate the important role played by education and skills in improving the life chances of children from disadvantaged backgrounds and hence in increasing social mobility.